The problem with a large standing military is the temptation to use it in places like Vietnam and Iraq. Lots of crow food there! And lots of debt to fight those wars. It’s true that the one of the best ways to unlock the public purse for research in the USA is to hint at a military threat, but I am surprised that this is regarded as a positive.

And, yeah, there are real uses for a military for defense in this highly militarized world. But you hominids get much less from the money spent on it than most of you imagine. Do the benefits of military research outweigh the costs of the wars you have fought in the past 60 years?

Oh, and the 4th of July fireworks: military. Self indulgent there…

Now if politicians would only recognize that US energy independence is a national security issue and spend DOD money to make that happen, it might actually help the economy (and security) much more than bailing out banks or bombing people…

Very soon we will see the causality change direction to:
economic weakness -> financial market instability

Keep your eyes on:
unemployment
corporate profits
bankruptcies (personal and corporate)

Financial institutions will not return to health as long as people are out of work and businesses are failing.

I think that the next big drop will happen this year, although it won’t be the worst. That will happen in a couple of years, maybe. But there will be a serious decision point for our government this year, where they will be forced to choose between the country and the banks. That will come as the states find it impossible to stay in balance, and the government bond (federal, state and municipal) market crashes as those bonds all lose their ratings. The non-federal bonds are in deep trouble, and the chances of default go up by the day, as those governments lay off more and more of their workers to try to balance budgets which can’t be.

I just don’t know how much banks hold these as hedges against losses on the toxic (bond related) assets. If the big banks has strong positions, they could be headed down with the states.

Then, who will pay the piper? Given the choice of bailing out the states or the banks, it is my bet the both the White House and Congress will choose the former. Then: armageddon!!!

To be successful, I think a new party would have to include members of all classes and many regions that are currently Republican. For a new party to be successful, I think it would have to take seats from the Senate Republicans. It’s hard for me to imagine red staters making common cause with urban liberals but “politics makes strange bedfellows” and it looks like many people will be desperate by 2012.

Look for some serious problems next year in the regionals among the TARP 19, especially those that have big real estate exposures outside their traditional footprint. These will be solvency, not liquidity issues. Ahem. Resolving those situations (and the experience with AIG and Lehman Brothers) will help develop the regulatory skills required to administer the utility functions necessary to the general economy.

But, this isn’t an elevator, and there isn’t a linear descent. It’s a matter of two steps forward, one step back. I just wonder who the American Peronistas are.

The stress tests were a marketing campaign (as you and Simon have said repeatedly) and not meant to structurually improve the banking system. They restored some confidence in the markets as evidenced by the fact that some banks can today raise capital wo an FDIC guarantee. I don’t think Summers cares about unemployment and probably sees it as a laggind indicator…with (perception of) bank health as a leading indicator. How else could the administration treat Citigroup and GM so differently?

If “people” were trying to create another asset bubble to replace the housing bubble, what would these people do?

Would “they” bailout AIG counterparties using gov’t debt so that “big banks” could borrow at near zero percent to raise the stock market and oil prices then pass cap and trade?

Would “they” being trying to blow an alternative energy bubble in this manner?

What if the Fed were a Bank?

http://www.ritholtz.com/blog/2009/07/what-if-the-fed-were-a-bank/

I can only hope so. How about one that represents the lower and middle class instead of the rich “free marketers” (republicans) and instead of the rich “big gov’ters” (democrats)?

Although, given how things are going, maybe I’m just early to the party.

Cheers,
Carson

Given that the CRE fireworks have only just begun, the Fed has trillions in rotting MBS on its books and useful employment is plummeting, I don’t see how anyone can say that we’ve dodged the bank bullet. The market is being held up by big banks program trading desks, probably at the behest of the Fed. The states are teetering on insolvency (or, in CAs case, plummeting downwards fighting a pissed off bankruptcy balrog.) The Fed, following generally accepted economic principals, is going to backstop ALL OF IT.

It’s another can-kick up the exponential debt curve by prostituting the U.S. sovereign credit rating, which will ensure that the eventual collapse will be all the more spectacular. The last can-kick, after the dot com crash, bought us five or six years. This one buys us one or two, tops.

Cheers,
Carson

What a change from September, when Paulson sounded the alarm of impending catastrophe.

If only we had trillions to bailout everyone else who could use it! Like all those millions of people dropped from gainful employment without a salary or a bonus or a bailout or even health insurance to prop them up….